Larger Portfolio Landlords Face Financial Oblivion Unless They ACT NOW!

Larger Portfolio Landlords Face Financial Oblivion Unless They ACT NOW!

21:01 PM, 30th March 2020, About 2 years ago

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Janet and John have spent their time in isolation considering the impact of Covid-19 on their rental property business.

They are predicting that in the 2020/21 tax year their rental income will reduce by approximately one third. This has already started happening with the inability to rent properties recently vacated and which they had been refurbishing. They have also factored in the impact on their tenants ability to pay as a whole.

Janet and John have not over-borrowed. In fact, their mortgage interest represents just one third of their rental income. This is a much lower ratio than for many landlords. Their other expenses such as maintenance amounts to another third of their income and the final third is their profits.

Based on their predictions, they will make zero profit in the 2020/21 tax year but they will still be required to pay a significant tax bill unless they act quickly.

Their financials from last year can be summarised as follows:-

£75,000 a month rental income

£25,000 a month of mortgage interest

£25,000 a month of other claimable business expenditure

Thus leaving £25,000 a month of profit.

However, this year they are forecasting the following:-

£50,000 a month rental income

£25,000 a month of mortgage interest

£25,000 a month of other claimable business expenditure

Thus leaving £ zero profit.

This is their ONLY income as they both run their property rental property business full time.

For tax purposes, their mortgage interest will not be deemed to be a deductible expense in the 2020/21 and beyond.  Therefore, they will be taxed on £300,000 even if they make no real profit.

Even after using all of their personal allowances, between them they will still be due to pay £49,200 of tax

They considered taking a three month mortgage holiday, essentially increasing their debt by rolling up unpaid interest, but even this would only save them £75,000 leaving them just £25,800 of borrowed money to live on for a year. To some that might sounds OK, but not if you have been used to living off £300,000 a year!!!


Thankfully, yes there is, but only if action is taken RIGHT NOW!

The solution is to sell their business to a Limited Company in exchange for shares. Janet and John Limited will then be eligible to offset 100% of the costs of finance adopted by the company against rental income.

Based on Janet and John’s forecasts, the company will not make any profit whatsoever, so no tax of any kind will fall due.

This form of restructure is known as incorporation.

‘Incorporation relief’ applies where a person other than a company transfers a business as a going concern with the whole of its assets (or the whole of its assets other than cash) to a company wholly or partly in exchange for shares.

The way the relief works in practice is that all or part of the gains arising on the disposals of the assets are ‘rolled over’ against the cost of the shares.

A claim is not required because the relief is automatic. 


A Business Sale Agreement using a Substantial Incorporation Structure avoids the need for arranging new mortgage funding at the point of incorporation.

Last but not least, in Janet and John’s case, the company will pay no Stamp Duty or LBTT either on the basis that they are also eligible for relief.

Property118 (in conjunction with Cotswold Barristers) can assist people like Janet and John to implement an incorporation based restructure within 20 working days. In the case of Janet and John it will cost just a fraction of the money they can defer in interest payments by taking a three month mortgage holiday. This will also leave them with some extra money to live on in the absence of any Government support whatsoever.

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What on earth are you waiting for?

Charles Darwin once said; “it is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”

When the former Chancellor of The Exchequer George Osborne announced in the Summer Budget 2015 that the basis of taxation for individual landlords was to change, those who had bothered to listen were in disbelief and the rest were oblivious.

I liken this to a madman announcing that volcano is soon to erupt.

Nevertheless, some landlords adapted.

After some time, clause 24 of the second Finance Bill of 2015 finally passed through Parliament, the House of Lords and received Royal Assent to become  FA2015(part 2)/Section24. This was the equivalent of all scientists confirming the date and time the volcano would erupt. Those who had become aware were still in shock and disbelief, but a few more adapted.

We are now entering the forth year after the eruption. At the time of writing this article the lava flow is just days away from the bottom of the mountain.

Some landlords are still either oblivious or looking up at the lava flowing towards them, frozen in either disbelief or fear. Nevertheless, most remain oblivious to the risks to their business and only a fraction of those facing being burned to a crisp have even investigated their options, let alone adapted.

This is landlord apathy at it worst.

When will they move?

For the sake of £400 we can complete a full Fact Find and analysis of your position and then prepare a bespoke report and recommendations outlining the optimal adaptation plan for you. This can then be checked by your existing professional advisers and we will even obtain Counsel’s opinion of our recommendations for you at no extra charge. Even after all of that, if you’re anything less than 100% satisfied you can claim a full refund under our GUARANTEE of total satisfaction.

So what are you waiting for?

Landlord Tax Planning Book Now